Will Digital ID Wallets Replace Traditional Identification Documents?

The popularity of digital ID wallets worldwide is on the rise. A new study from Juniper Research reveals that the global use of digital identity apps will reach over 4.1 billion by 2027, compared to 2.3 billion in 2023. That’s a remarkable 82% growth in just four years. What’s driving it?

More services are moving online, governmental support for digital identity solutions is growing, and traditional methods of identity verification are becoming simply inconvenient. So, it’s no surprise that the need for secure and efficient digital identification solutions has never been stronger. In fact, it’s predicted that government-backed digital IDs might soon replace traditional physical documents. 

For example, the EU is planning to launch the EU Digital Identity Wallet (EUDI Wallet) through the eIDAS 2 framework, making cross-border e-ID a reality. Several countries already utilize digital ID wallets, which raises important questions: What exactly is a digital ID wallet? How does it work, and what benefits can it offer?

Digital ID wallet: What is it?

You’re likely familiar with digital wallets like Apple Pay, Google Pay, or PayPal mobile app, where you can store payment credentials. These have been around for quite some time now. Building on this concept, digital ID wallets enable you to add the storage of verified personal and identity data to the wallet.

Since there isn’t a standardized framework yet, the specific content and functionalities of digital ID wallets can vary. Still, they act as a secure container for verified digital documents and credentials. These might include your personal details (name, date of birth, national identification number, citizenship, and visas), financial details (tax number and insurance), and other documents (driver’s licenses, passports, medical records or professional certificates, issued by government authorities or trusted institutions).

What does a digital ID wallet do?

It can be used for verifying your identity online and in person for tasks like:

• accessing government services;
• signing documents;
• proving your age or citizenship;
• authorizing payments;
• renting a car or a hotel room;
• claiming benefits;
• verifying your education credentials.

Digital ID wallets might exist as standalone applications or be integrated within existing secure mobile environments, like smartphone operating systems. They offer better security and more control over sharing your verified credentials. That’s why they’re gaining popularity worldwide, providing greater convenience, security, and inclusivity. With digital ID wallets, you can easily access and share your personal info without carrying physical copies.

How do digital ID wallets work?

Digital ID wallets work much like physical wallets but with an extra layer of security. While a physical wallet holds physical cards and money, a digital ID wallet doesn’t store its contents within the wallet itself. Instead, they’re stored on a server or blockchain for protection. In fact, your digital identity wallet only contains a private key, generated when you create your account.

A private key, like a password, is a secret number used in cryptography. It’s exclusive to you and allows you to share and verify data associated with your wallet. Since this key grants access to your documents and private data, it should only be shared with the key’s creator or authorized parties capable of decrypting the data.

Digital ID wallets offer a secure way to store and share verified digital credentials, but there are two main approaches to their architecture: centralized or decentralized. Let’s delve into each:

Centralized wallets, like those managed by local governments or tech giants such as Apple or Google, operate similarly to widely used digital services. They’re convenient because the third party holds your data, offering a way to recover your user account if you forget your credentials. However, they’re also more vulnerable to attacks and misuse since accessing one account grants access to all data.

Decentralized wallets, gaining popularity with blockchain technology, offer enhanced security by eliminating the need for a third party. Instead of being stored on a single server, data is distributed across a blockchain, known as decentralized identity (DID). This distributed structure makes it challenging for unauthorized access and provides users with more control over their data. With DIDs, data is more secure, less prone to loss or corruption, and offers users greater flexibility in data management. 

Digital ID wallets already in use: The situation around the world

Governments worldwide are embracing digital ID wallets, empowering citizens with secure and immediate access to their personal information. Successful local initiatives are paving the way for broader adoption, as more countries acknowledge the potential of these wallets to transform how individuals manage and control their data. A study by McKinsey Global Institute estimates that implementing an efficient digital ID system could unlock economic benefits equivalent to 3 to 6% of a country’s GDP by 2030. Here are just a few examples of effective digital ID wallet implementation.

Denmark: MitID

Denmark ranks among the top countries globally for digitizing its public sector. The Danish national eID, known as MitID, serves as every resident’s digital passkey to access online services, spanning both governmental and private sectors. MitID is the outcome of a strong and distinctive partnership between the government and banks, serving as a joint solution for businesses, individuals, and authorities alike.

Today, over 90% of the population relies on their national eID for electronically proving their identity in situations where it’s crucial. With MitID, citizens can access public services round the clock. In the public sector, MitID is indispensable for various tasks such as updating addresses, applying for childcare, accessing tax information, selecting a healthcare provider, checking Digital Post, or even managing affairs when leaving Denmark.

Estonia: eID

Estonia is yet another country widely recognized in digital identity (eID) solutions. Their eID system, known as ID-kaart, serves as a mandatory national identity card for citizens. It’s been in use for over 20 years and has become the cornerstone of the country’s e-state. It acts as both legal identification and a digital signature tool, granting secure access to various online services like e-voting, healthcare records, banking, and much more.

Estonia’s eID system is impressive, with nearly the entire population (99%) holding a digital ID and exceeding 1 billion digital signatures performed, showcasing its widespread use and secure functionality.

Netherlands: DigiD and eHerkenning

In the Netherlands, they’ve adopted a dual approach to digital identification with two main systems: DigiD and eHerkenning. DigiD, short for Digital Identification, serves citizens by providing seamless interaction with government agencies, much like a digital passport. Each user gets a unique number, along with a username, password, and various security measures for safe access to sensitive data. It facilitates tasks like tax filing, benefit applications, and checking pension or health insurance statuses.

eHerkenning, on the other hand, targets organizations, bridging public and private services. It enables businesses to offer secure online services and conduct thorough identity verification. The DigiD app is used by more than 15 million citizens, while eHerkenning boasts 500 service providers and 13.3 million logins annually.

Sweden: Digital ID card in BankID

Sweden relies on the BankID system for digital identification. It works like a digital passport or driver’s license, allowing for different online tasks such as opening bank accounts or filing taxes. As of 2023, over 8.5 million Swedes use BankID, making it one of the most successful digital identity solutions in the world. 

BankID uses strong authentication methods. For example, the mobile BankID requires a PIN and fingerprint or face recognition to ensure the security of user data and prevent unauthorized access. There are strict data privacy regulations in Sweden, and BankID adheres to them, ensuring user control over their personal information stored within the system.

Sweden is also constantly exploring ways to improve and expand the functionalities of BankID, with potential future applications in areas like e-voting and healthcare access.

Poland: mObywatel

The mObywatel app acts as a citizen’s assistant, catalog of ready-to-use e-services, and wallet for digital documents. It has already been downloaded over 15 million times. mObywatel offers citizens a convenient way to present their identity documents in real-life situations. The app may include different types of documents such as ID cards, driver’s licenses, school and student ID cards, Large Family cards, car details, and much more. 

It’s handy for various occasions like train rides, police checks, getting loyalty cards, collecting packages, and even voting. However, it has some restrictions. It can’t be used where the law mandates showing an ID card or passport, like at banks and airports, or when registering a SIM card, which is compulsory in Poland.

Singapore: National Digital Identity (NDI) system—Singpass

Singapore has implemented a centralized digital identity system called Singpass, led by the government. This wallet allows citizens to access various services from both the public and private sectors. These include applying for public housing, managing insurance policies, and conducting online banking. Users can log in to various digital services effortlessly and securely through the Singpass app. 

They can log in by using their fingerprint, facial recognition or a 6-digit passcode. Singapore’s Singpass app now offers two-factor authentication (like facial recognition) for stronger security, letting users transact securely anytime, anywhere.

The digital ID landscape

European Union

Even though around 60% of the EU population can access a digital ID, just 14% of key public services across all EU countries allow cross-border authentication with e-ID. This doesn’t really align with the vision of a unified market and equal rights for citizens. Especially when 2 out of 3 EU citizens are looking forward to the launch of a pan-European Digital ID Wallet system.

So, that’s where the eIDAS 2 Regulation steps in. It aims to make cross-border e-ID a reality in the EU where every member state offers a digital ID wallet to citizens who want one. Back in 2014, the original eIDAS Regulation was introduced to ensure seamless electronic service access across European countries. Since then, the EU has become a global leader in establishing trusted digital transaction frameworks and authentication standards.

The European Digital Identity (EUDI) Wallet will merge various digital credentials into a single mobile app, including ID cards, driver’s licenses, diplomas, medical records, and bank account details. When will it be introduced? The EUDI Wallet is an ambitious initiative. In April 2023, the project entered the pilot stage, being tested in real-life situations across various sectors like healthcare, finance, education, and transportation.

Over 250 private companies and public authorities from 25 EU member states and Norway, Iceland, and Ukraine are participating, as reported by the European Commission. The plan is to grant at least 80% of the EU’s 450 million citizens access to the EUDI Wallet by 2030.

The United States 

In the United States, individual states issue identity documents. Each state manages its own set of records, including birth certificates, marriage certificates, death records, and driver’s licenses, which are the most common form of identification.

While some states like Colorado, Maryland, and Arizona already offer mobile driver’s licenses (mDLs), other states will adopt them at their own pace. Unlike Europe, the U.S. lacks the nationwide mandate to promote digital identity adoption and usage. 

What’s more, the majority of Americans express concerns about the effectiveness of a government-provided national ID wallet. They see it as more state control. Yet, many are comfortable using their identity information through existing digital wallets like Apple Pay or Google Pay. In response, Apple is developing a decentralized ID wallet system. It’ll handle verifying identity documents, like driver’s licenses and passports, through iPhones or Apple Watches.

Given these factors, it is unlikely that the U.S. will catch up to Europe by 2030. This could lead to growing interest from the private sector in mainstreaming digital identities. Companies like Airside, Authentify, CLEAR, Apple, and Mastercard are rolling out comprehensive digital identity systems. These aim to simplify identity sharing for users and help businesses combat fraud while staying compliant with KYC and AML regulations.

The United Kingdom

In the UK, plans for mandatory citizen digital identity have sparked worries and misunderstandings, reflecting the wider discussion on digital identity systems. To tackle this, the UK government has released a fact sheet to dispel myths and clarify its intentions. Currently, there are no plans for a national digital ID wallet. Instead, the government is focusing on exploring their potential in specific sectors like travel, healthcare, and age verification.

The UK also has the Digital Identity and Attributes Trust Framework (DITAF), which establishes a set of rules and standards to create a trustworthy ecosystem for digital identity solutions, including wallets. DITAF lays the groundwork for potential future development in this direction by ensuring trust, security, and user control within the digital identity landscape.

Benefits of digital ID wallets 

Digital ID wallets are emerging as a secure and convenient solution for managing personal information in the digital age. Acting as digital containers, they store verified credentials like identification documents, financial details, and other essential data. This innovative technology holds significant promise for users, offering several potential benefits. 

• Convenience: Imagine carrying all your essential IDs, like driver’s licenses, passports, and membership cards, in a single secure digital location. No more bulky wallets or the frustration of forgetting important documents. Digital ID wallets offer the convenience of managing all your credentials in one place, accessible from your smartphone.
• Streamlined efficiency: Sharing verified credentials online often involves tedious processes and multiple logins. With digital ID wallets, you can easily share your verified information with authorized entities, saving time and effort. This can be particularly beneficial when applying for services, signing documents electronically, or making online purchases.
• Increased security: Digital ID wallets often come equipped with robust security features like encryption and multi-factor authentication. This provides peace of mind knowing your data is well-guarded.
• Greater control over privacy: Unlike traditional ID systems, digital ID wallets empower you to decide what information you share and with whom. You have the control to choose which specific credentials an entity can access. This gives you greater control over your privacy and prevents unnecessary data sharing.

Security considerations and challenges

Digital ID wallets, while offering convenience and potential benefits, raise security considerations and challenges that require careful attention.

• Public trust: Earning public trust is crucial for digital ID systems to work well. Still, some people may be skeptical or resistant because they’re worried about surveillance, misuse of data, or not understanding the benefits of the system.
• Data privacy laws: Following global rules on data protection and consent is vital for the credibility of the solution and to safeguard users’ privacy. However, this might pose some challenges.
• Infrastructure: Governments must set up a robust infrastructure for national digital ID systems that seamlessly integrates with existing systems. The system’s reputation relies heavily on component interoperability within a multi-party ecosystem. If one entity’s changes lead to incompatibility, it can affect more than just that party.
• Security risks: Digital ID wallets face significant security threats, including data breaches and identity theft. If hackers compromise the wallet’s security or the underlying infrastructure, sensitive information like names, addresses, and government IDs stored in the wallet could be stolen. This can lead to identity theft, financial fraud, and other malicious activities, even with strong passwords in place.

Are digital ID wallets set to replace traditional IDs?

The rise of digital ID wallets presents a compelling alternative to traditional identification documents. These digital ID wallets offer convenience and security, raising the question of whether they might replace physical IDs entirely. While widespread adoption is on the horizon, some key issues remain to be addressed. Public trust in data security and privacy, alongside questions of global acceptance, are factors that will determine the ultimate role digital ID wallets will play in our future.

FAQ

Can I use a digital ID wallet for official purposes?

Yes, for example, you can use your digital ID wallet to verify your identity, make payments or open a bank account, all in full security and protection of personal data. However, it’s important to bear in mind that digital ID wallets might not be accepted everywhere. Its acceptance and functionality may vary by country and institution.

Are there any privacy concerns with using a digital ID wallet?

Yes, digital ID wallets may raise some privacy issues. Although they provide convenience, they hold sensitive personal data that might be vulnerable without proper protection. That’s why it’s crucial to use ID wallets with robust security measures and be careful when sharing it to protect your personal data.

What is the future of digital ID wallets?

The future of digital ID wallets looks promising. They’re being more widely embraced and incorporated into different services. They’re expected to become even more secure, user-friendly, and widely embraced. Digital ID wallets will likely play a key role in managing and confirming identities in personal and professional situations.